For some, a simple flip through the day’s mail can soon turn into a panic-producing event. Bad news, bill collectors, or worse, a tax notice from the IRS, state department of taxation, or the local tax agency.
Feeling a bit overwhelmed and possibly confused, you may wonder what consequences await you. You may have heard horror stories of people having their wages garnished, a percentage of social security payments withheld, a hold placed on bank account funds, and liens placed on real property. Understandably, these stories likely have instilled a bit of apprehension. However, while dealing with the IRS can be unnerving, know that there are several things you can do to help resolve the issues (and anxiety) brought forth by tax agencies.
- Enlist the Help of a Professional
The first action step to take if you receive a tax notice from the IRS is to seek the help of tax professionals such as the tax team at Zinner & Co. We understand the tax code is quite complex and the issue surrounding your tax notice could be one of the thousands (yes, thousands!) of different types of issues a taxpayer may incur.
We work on behalf of our clients with a depth of understanding of the tax code and IRS regulations and, we work in liaison with the IRS to ensure what your next step should be and more important, when that next step should be taken. When dealing with the IRS, understand that timing is critical. Keep in mind that penalties and interest continue to accrue until the balance due is paid in full. If you somehow make a mistake trying to analyze and respond to a tax notice on your own, or if you wait “until next week,” it could end up costing you more money in the long run due to the difference between the payoff balance date and daily accrued interest.
- Don’t Let Panic Dictate a Quick Response
The worst thing you can do when you receive a tax notice is to panic and make a quick decision before assessing the situation. Doing so has the potential to make the situation worse for a couple of reasons:
Scams today are designed to get you to give up your personal information by instilling fear and panic. One tactic scammers use to accomplish their goal is to send fake, yet official looking, tax notices. The scammers create a false dilemma with a sense of urgency and rely on the fear of their victims to illicit unquestioned compliance to their demands. While there are many ways crooks try to con you, be aware of the following red flags that may indicate you are dealing with a scammer:
- Blatant and obvious grammatical errors or general incorrect use of the English language.
- Strong threats that your assets will be seized
- Threats that you will go to jail or that someone will be coming to your house right soon.
- Always be skeptical if you receive correspondence in the form of email or phone call. Remember, the IRS communicates via US Mail.
Another point to consider is that the notice, even if it is ‘official,’ may not be correct. Yes, even the IRS makes mistakes. One of the first things you should do when you receive a tax notice is to check its accuracy. Make sure the details of the notice are both in conformity with the code and that your tax return is mathematically correct. It would be a shame to pay money to the IRS that you do not owe.
- Avoid Responding to the Notice on the Last Possible Day
Always remember the phrase “’due by’ does not mean ‘due on’”. It is never a good idea to wait until the last possible day to respond to a tax notice. As we mentioned, the clock is always ticking with the IRS. Contact your tax professional as soon as you receive any correspondence from the IRS. Oftentimes, there are additional signatures and forms that need to be completed in order to correctly respond to the notice. When dealing with the IRS and state taxing agencies, it is almost always necessary to obtain a signed Power of Attorney. Without a Power of Attorney, your tax professional will not be able to manage tax matters on your behalf. Additionally, many tax notices require the filing of an additional return, or amending a return. By discussing the notice early with your accountant, you will have the greatest chance to resolve the issue as efficiently and effectively as possible.
- Know That Many Times No Action is Needed
Millions of tax notices are sent to taxpayers every year. Oftentimes these notices require no action from the taxpayer. Why? Some notices are simply a report to the taxpayer about what the IRS is doing. For example, the IRS may send a notice letting you know that they have received a certain form or correspondence from you and that it is being processed. Other notices may be reporting an adjustment for an overpayment. Keep in mind, many notices require you to do nothing if you agree with the notice.
- Only Fight the Battles Worth Fighting
When dealing with tax notices, it is important to pick your battles wisely. If the balance due is a small, insignificant amount, then it is usually better just to pay the balance and accept it at face value. It is not always a good idea to fight every notice based on principle. From a cost-benefit standpoint, it can end up costing you more to hire an accountant to handle the situation than it is worth.
More important, fighting the IRS runs the risk of drawing attention to yourself. When you challenge the IRS, you may end up getting flagged. Even if you do prove the IRS wrong, it can theoretically open a “can of worms” since the IRS could subsequently decide to further review your return from the current year or, delve deeper into past years and find other adjustments that they deem necessary. All of this hassle may not be worth the benefit of the small victory achieved from chasing around a few dollars.
- Choose the Optimal Response Strategy
The most important aspect when dealing with a tax notice is choosing the right strategy. Yes, you need a strategy when dealing with the IRS. As with any “we against them,” the best way to learn how to deal with the other side is by understanding their playbook. In the case of tax notices, the IRS literally hands you their playbook by allowing you to have free access to the Internal Revenue Manual. The manual is used by IRS employees as a guidebook when handling tax situations. In particular, there is a comprehensive section about penalty relief. The IRS lists four acceptable reasons of when they would relieve a tax penalty:
- Reasonable Cause
- Statutory Exceptions
- Administrative Waivers
- Correction of an IRS error
The IRS teaches us that the decision to abate a penalty is made based upon the facts and circumstances. In other words, there is not a one-size-fits-all rule that is applied when considering penalty relief. It also means that the strategy and wording are very important. Correctly communicating your story to the IRS and articulating the actions you are requesting is crucial.
If you received a letter, email, or phone call requesting money or if someone requests your personal or identifying information, before taking any action, contact us. Our professionals work closely with federal and state taxing agencies and will review the communication you have received to ensure its authenticity. Contact me at email@example.com or any of the Zinner team of professionals at 216.831.0733. We're ready to start the conversation.